CUSTOMER LIFETIME VALUE
Finding the Right Market for "Eco-Ware"
• A former Drexel MBA student has decided to market plates and dishes that are made from the leaves of plants - he calls it "eco-ware."
The leaves are grown in India, and are the byproduct of a popular fruit, making them low cost and environmentally friendly. The dishware is an alternative to porcelain and disposable plastic plates. He plans to sell these in the New York, New Jersey, and Pennsylvania area.
• He needs to decide whether he should market this product to either restaurants or caterers. Each of these segments has its own idiosyncrasies which he suspects will result in a different profitability.
Assumptions
|
|
Restaurant
|
Catering
|
|
Cost of solicitation (sales call: time, samples, expenses)
|
$1,000
|
$50
|
|
Response rate for solicitation
|
10%
|
20%
|
|
Number of purchases per year
|
6
|
12
|
|
Average spend per purchase
|
$4,000
|
$400
|
|
Ongoing marketing costs
|
$500
|
$200
|
|
Margin (includes commission)
|
50%
|
50%
|
|
Retention rate (r)
|
70%
|
40%
|
|
Discount rate (d)
|
.10
|
.10
|
Your job is to calculate the CLV and suggest which segment is more profitable.